We have examined the ability of the tat (trans-activation of transcription) genes from both human T-lymphotropic virus type-1 (HTLV-1) and human immunodeficiency virus type-1 (HIV-1) to transform early passage rat embryo cells. Transfection of either the HTLV tat-1 or the HIV tat-3 genes alone showed no effect on these cells. However, co-transfection of either the tat-1 or tat- 3 genes with the activated ras oncogene resulted in the formation of foci of morphologically transformed cells. Focus formation was substantially higher for co-transfection of ras and tat-1 versus ras and tat-3. Five out of five ras plus tat-1-transformed cell lines formed tumors after subcutaneous injection into athymic nude mice. At least two out of five ras plus tat-3 transformed cell lines were also tumorigenic in nude mice. These results demonstrate that the transactivating genes tat-1 and tat-3 from human retroviruses are capable of contributing to the transformation of rodent cells, and suggest that they may be involved in oncogenesis in humans infected with either HTLV-1 or HIV-1. Based upon the above observations, we have introduced separately the HTLV tat-1 and the HIV tat-3 genes into the germ line of mice to test their potential to induce tumors in vivo. Transgenic mice carrying the tat-1 gene from HTLV-1 developed von Recklinghausen's neurofibromas and those carrying the tat-3 gene from HIV-1 gave rise to Kaposi's sarcomas. These results provide direct evidence that a single gene from either HTLV-1 or HIV-1 can induce tumors.